US President Donald Trump has promised that digital assets will play a crucial role in innovation, economic development and the country's international leadership. Some experts fear that the new American leader's decisions will lead to disaster.
The Economist reports that the Biden administration has been working hard to keep the crypto industry out of Wall Street. Strict regulations have made it prohibitively expensive for banks to hold digital assets on behalf of clients and have prevented them from creating their own crypto products, such as stablecoins - tokens pegged to the dollar or other assets. But that could change now.
On January 21, Travis Gill, the interim chairman of the FDIC, said he wanted to make cryptocurrency regulation more transparent and that all law-abiding customers should have access to bank accounts. The cryptocurrency industry has long been denied this opportunity due to money laundering concerns.
On January 23, the Securities and Exchange Commission changed its guidance so that financial institutions no longer have to account for cryptoassets held on behalf of customers on their balance sheets.
These changes will affect virtually every institution on Wall Street. Brian Moynihan, CEO of Bank of America, said that banks will accept cryptocurrencies such as stablecoins, which can facilitate transactions. Many of them are experimenting with crypto tokens that transfer ownership of shares in money market funds. They also intend to develop trading and custody of crypto assets once all the nuances of the new regulatory regime are known. In this regard, it is expected that some institutions may acquire cryptocurrency companies.
Dylan Walsh from the consulting company Oliver Wyman believes that the opposite situation could also happen - cryptocurrency companies will buy institutions with banking licenses that allow them to accept deposits and issue loans.
But traditional finance and the crypto industry don’t always agree. The biggest sticking point is the Federal Reserve’s payment “rails.” About 9,000 companies have master accounts with the central bank, which allow payments to be made without intermediaries, reducing the cost and complexity of transactions. Some crypto companies have already applied for master accounts, but have either been denied or their applications are still pending.
Traditional banks are happy with this state of affairs. The Banking Policy Institute and the American Bankers Association have supported the Fed’s right to block access to master accounts. They have emphasized the need to protect against credit risk, cybersecurity risk, and reputational risk, especially related to money laundering and terrorist financing.
There are also concerns about the volatility of cryptocurrencies. Stephen Kelly of Yale University says he is concerned about the implications of “the connection between what happens in cryptocurrency prices and what happens to banks.” If fluctuations in the cryptocurrency market affect bank deposits, institutions will become more vulnerable. He says that is exactly what happened with Silvergate and Signature, two cryptocurrency banks that collapsed in 2023.
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